KEY POINTS

  • Whisper it…the crypto winter might be about to end as Bitcoin reclaims the $30,000 mark for the first time in almost a year.

  • Speculation that the Fed may ease up on its rate hikes and fears about the traditional banking system are believed to be major drivers.

  • We're not out of the woods yet -- crypto still has a bumpy ride ahead, particularly in terms of regulatory headwinds.

Bitcoin (BTC) has pushed above $30,000 for the first time since June last year, peaking at almost $31,400 this morning. Bitcoin's price is up over 80% since the start of this year, according to CoinMarketCap data. That's impressive, but it's still got a long way to go before it regains its 2021 high of almost $69,000. Find out what's behind its recent price action and what it means for investors.

What's behind Bitcoin's rally?

There are several drivers behind Bitcoin's recent rally. Chief among them is speculation that the Federal Reserve may stop increasing interest rates. The Fed has been aggressively pushing interest rates upward in an attempt to get inflation under control. This had a big impact on crypto prices, as it meant people pulled out of riskier assets like Bitcoin. The thinking is that the investors might swing back toward crypto if the Fed eases its tightening measures.

Some insiders think fears around traditional banking are also fuelling price rises. For example, Bradley Duke, co-chief executive officer of ETC Group, told Bloomberg that people are also being drawn to crypto because it's "an asset outside of traditional banking and finance."

Sentiment also plays a huge part in Bitcoin's price. This is a market with a lot of speculative price action, and investors often buy when things seem to be going well -- partly out of a fear of missing out -- which pushes prices up further. It's not so surprising, then, that the Crypto Fear and Greed Index is into serious greed territory. The index, which uses a couple of factors including momentum, volatility, and social media analysis, hasn't logged such high greed figures since November 2021.

Can it continue to rise?

Many crypto investors want to know whether this might finally mark the end of the crypto winter. It's an understandable question, particularly as many people's portfolios have taken significant hits. But unfortunately, nobody has a crystal ball and it is hard to know whether -- and for how long -- the current rally will continue.

What we do know is that Bitcoin and cryptocurrency have some serious hurdles to jump in both the near and long term. Regulators have been cracking down on the whole industry. The SEC says many cryptocurrencies are unregistered securities and argues they should come under its remit. If it can push this case successfully, it will have a significant impact on the way we buy and sell crypto.

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There are also growing fears that we're about to enter a recession. This could be another drag on Bitcoin's price as recessions tend to make people more risk averse. More widely, crypto faces a trust issue: the collapse of several crypto platforms has dented people's confidence in the whole industry. This is particularly true as we learn more about what went on behind the scenes at FTX and the degree to which the company mishandled customers' money.

Should you buy?

If you're considering buying Bitcoin, know that it remains an extremely volatile asset. Think about how it might perform in the long term and make sure you understand the risks involved. We are no longer in the stimulus-laiden climate that fueled the crypto frenzy of 2020 and 2021, and there are no guarantees that prices will ever recover those highs.

It's also important to be comfortable with the consequences of the relative lack of regulation in the industry. First, there is not a lot in the way of investor protection if your crypto platform fails. Second, if and when authorities introduce more rules, prices will likely fall in the short term. For example, it's only through increased transparency that we'll find out what reserves other crypto players have. Stricter regulation may also uncover the truth of accusations of fraudulent practices, such as wash trading.

All the same, Bitcoin evangelists argue that the leading crypto could transform the way we use money and it may be the digital currency of the future. If you think their logic holds water and want to own crypto, it's important to manage the level of risk you're taking on and make sure it only represents a small portion of your overall portfolio. Follow the golden rules of crypto investing: Only invest money you can afford to lose and use a crypto exchange that you trust.

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